Premier Strategy Clients Potential Tax Liabilities

As we are only too aware many former clients of Tenon, were recommended by their accountants to make settlements into EBT’s. These clients have been left in a bit of a hiatus following the Administration of Premier Strategies Ltd – we know from the many telephone calls and feedback that they have feel exposed, uncertain and insecure in the period since administration.

We have been trying to secure information regarding future defence arrangements on all tax strategies implemented by Premier Strategies, particularly those that relate to EBT’s.

We believe that all Premier clients (irrespective of which tax strategy they did) are likely to receive 2 emails in the next week from respectively the administrator, Deloittes and Baker Tilly (the firm which has taken over Tenon).

Whilst we have not seen details or the contents of those e-mails, we are now aware of the parameters in relation to how strategies can be defended in the future.

Although pure conjecture on my part, it’s possible that they will also indicate their intention to defend some or all of the strategies. However we have no confidence in Baker Tilly or the former Tenon tax team to defend you.

We have enabled many clients to extricate themselves from their EBT’s, however there are a lot more that we would like to help but we understand that many are rather shell shocked at the correspondences they have had.

There is still time to get independent, unbiased advice on how to resolve your potential tax strategies, using proven strategies that have consigned many EBT’s to the dustbin of history.

Ray Best can help you protect your financial future. To find out more, simply click here!

Great news for EMI schemes

Following changes to the legislation for EMI schemes , any EMI options granted after 6 April 2012 may be subject to capital gains tax at only 10% on sale of the shares, i.e. at the entrepreneur’s tax relief rate, because of the removal of the 5% shareholding requirement. Therefore any size of shareholding will be eligible for EMI members. So employees would pay tax at 10% rather than 28% typically.

Also improved  is that the requirement to have held the shares themselves for at least 12 months (as is required under the normal entrepreneur’s relief rules to obtain the 10% rate) has been relaxed for EMI scheme members such that the 12 month period runs from the date of grant of the options. Therefore there is no need to actually exercise the options and buy the shares so that the employee can hold them for at least a year before exit.

The result of this is that any EMI scheme member who has been granted options after 6 April 2012 will be able to benefit from the 10% tax rate if they sell their shares after 12 months from the date of grant (and after 6 April 2013 at the earliest).

Quote from the Finance Bill detail:

‘the Government will extend capital gains tax entrepreneurs’ relief to shares acquired through the exercise of EMI share options. Legislation will be introduced to extend the relief to EMI shares by removing the 5 per cent minimum shareholding requirement and allowing the 12 month minimum holding requirement to commence on the date the option is granted. This measure applies to shares acquired on or after 6 April 2012 that are disposed of on or after 6 April 2013.’

If you are seeking to reward and incentivise your employees why not consider an EMI scheme….

Ring a Ding Ding for Vodafone, but a Donger for the rest of us!

Why hasn’t there been more of a fuss over the absence of any UK tax payments by Vodafone on the £84bn proceeds from the sale of its 45% stake in Verizon Wireless?

Well my understanding is that Vodafone does not believe any tax would have been payable, even if the assets had been held in the UK, and not via a Dutch holding company.

That is because the last Labour government’s 2002 Finance Act introduced an exemption from tax on capital gains from “substantial shareholdings” held by companies.

Of course in Vodafone’s view, if MPs on the Public Accounts Committee wants to blame someone for the absence of revenues for the Exchequer from the eye-wateringly huge deal, they should direct their criticism at Gordon Brown, chancellor at the time.

That is another tax bonanza for Vodafone, on top of the sweetheart deal struck by David Hartnett of HMRC.

SME’s the target for HMRC

HMRC would rather collect the taxes it believes are due by collecting from SME accounts.

HM Revenue and Customs (HMRC) raked in GBP565m (USD905.4m) last year from its compliance investigations into small and medium sized businesses.

Figures analysed by accountancy firm UHY Hacker Young show that HMRC’s targeted investigations yielded 31 % more in additional revenue in 2012-13 than the £434M collected in 2011-12.

In his 2010 Spending Review, Chancellor George Osborne challenged HMRC to secure an extra £7bn a year in tax revenues from compliance activity. With an ambitious target set by the Chancellor to bring in billions of pounds through additional compliance, HMRC is desperate to squeeze as much money as they can from businesses who may owe tax.”

With far smaller budgets than larger businesses, SMEs are often less likely to have accountants to manage their finances, making them prone to mistakes when filling in returns and therefore an easy target for HMRC. That also means they are in a weaker position to negotiate over allegations of underpaid tax than a big business.

The media has focussed a great deal of attention on the tax affairs of large corporations. HMRC’s crackdown on SMEs has not attracted much attention. SMEs must therefore be especially “aware of the risks they face if their tax affairs are not in order, because SMEs are increasingly on HMRC’s radar – as the ever-growing yield from their activities proves.

“Everybody should pay their fair share of tax” George Osborne.

Talk is cheap as they say, but Osborne’s rhetoric is proving expensive for many of UK’s small business owners who are increasingly paying an unfair burden of tax while the rich and powerful get away almost scot free.

What is apparent is that by setting ambitious targets for an increasingly aggressive HMRC the  Chancellor has achieved some success.

Why not put the same effort and amount of resources into reducing government spending and improving efficiency, surely that is in the UK’s best long term interest! 

Ray Best can help you protect your financial future. To find out more, simply click here!

Estate Planning & Inheritance Tax

My partner is Non Domiciled – how best can I carry out Estate Planning for IHT?

Trust planning is just as relevant for clients who may be a mix of UK domiciled and non-UK domiciled as the bloodline protection and tax planning priorities remain the same. The key difference however may be dictated in the relevant magnitude of the assets owned by each partner.

A transfer of UK assets between legal partners is exempt from inheritance tax and every person, UK domiciled or not, is entitled to the full nil rate band to be set against their estate that is subject to IHT. If a non-UK domiciled partner transfers assets to their UK domiciled partner, a full spousal exemption also applies because such a transfer brings assets within the UK inheritance tax net. Greater consideration needs to take place when assets flow in the opposite direction, where assets may leave the UK inheritance tax regime.

This year there were some welcome changes to transfers to non-UK domiciled partners and although not unlimited the change effective from 5 April 2013 allows a UK domiciled partner to transfer the equivalent of the nil rate band (currently £325,000) to their partner. This allowance is in addition to their nil rate band which means a total of £650,000 may be gifted. This change is welcomed and for families of modest wealth most mixed domiciled partners will pay less IHT.

For wealthier clients, the tax position is not significantly different, although there will be more tax planning flexibility. Whereas the transfers to a domiciled partner are unlimited, transfers from a UK domiciled partner above £650,000 may be taxed at 40% and the residue will fall into the surviving partner’s estate. It is for these clients that more careful planning can be undertaken and the use of Trusts is particularly effective.

A further new benefit for non-UK domiciled spouses is the ability to elect to be treated as UK domiciled for IHT. The benefit is dependent on a number of factors including overall estate values, location of assets and future intentions however this additional planning option is welcomed for clients.

The tax treatment of mixed domiciled couples has been improved, but effective estate planning is not just about tax. Bloodline protection of assets can be even more important and the use of trusts is as relevant for non-UK domiciled clients as it is for UK domiciled clients. The use of trusts for main property assets and the residual estate is particularly important but needs to be implemented with even more consideration for mixed domiciled couples.

HMRC Simplification of IHT Trust Taxation

The consultation period for the simplification of trust taxation has now passed and what is clear is there are some severe reservations on aspects of the proposals from both legal and financial bodies. The proposals will simplify some aspects of planning but will create their own complexities and  the general conclusion is that HMRC will broadly implement their ideas regardless because of the beneficial tax impact. We believe that need to rethink aspects of the proposals which currently will create conflicts between trust and tax laws. We hope these will be more intelligently considered prior to the expected announcements in the Autumn statement.

Ray Best can help you protect your financial future. To find out more, simply click here!

David Heaton is “bumped” out of HMRC after offering tips on how to keep money “out of the Chancellors grubby mitts”

David Heaton is “bumped” out of HMRC after offering tips on how to keep money “out of the Chancellors grubby mitts”

David Heaton was filmed at a London conference entitled “101 ideas for Personal Tax Planning”, his tips included a scheme he referred to as “The Bump Plan” and informed the audience how they could exploit maternity pay rules to get the government to pay their bonuses.

Two months later Mr Heaton was working on a panel advising HMRC and the courts on artificial and aggressive tax avoidance.

This story is being covered by Panorama tonight at 8.30 p.m.  on BBC 1 – “Tax, Lies and Videotape”.

This first appeared on the BBC New Web Site on Saturday 14th September here is a link to the story.

This is simply one of a series of scandals from employees at HMRC .

Previously David Hartnett, was reported to have enjoyed 107 meals with companies, tax lawyers and advisers in two years, MPs criticised the “unduly cosy” relationship with major firms.

Mr Hartnett later quit and later joined Deloites, admitted to an “error” in letting off Goldman Sachs – a decision which the committee said cost the taxpayer at least £8million, but some put at in excess of £20 million.

Cosy deals allowing Britain’s biggest firms to escape paying billions of pounds in tax have sparked calls for an inquiry.

The Public Accounts Committee has accused the government and HMRC of going easy on big firms said: “We have serious concerns about how the department handled some cases.”

Richard Brooks a former HMRC employee made a statement to the effect that “Tax policy is strongly distorted in favour of the very largest corporations. Among the harmful consequences of this are the shifting of the tax burden onto other businesses and individuals and the competitive disadvantage suffered by smaller businesses. This distortion stems from a growing capture of the corporate tax policy-making process by the largest companies.

The whole process has been overseen by a “tax and competitiveness group” comprising the finance or other directors of Vodafone Group , Diageo , RSA Insurance Group , GlaxoSmithKline , Rolls-Royce , General Electric Company, Ford Motor Company, Amey , Royal Dutch Shell plus the director of the business-funded Oxford University Centre for Business Taxation and the Director-General of the CBI. Again, the companies mentioned stand to gain significantly from the changes proposed.”

Without Richard Brooks insight we might actually fall for the Chancellors line of coming down hard on tax avoidance, when he actually means applying the full force of HMRC to small and often struggling business but letting the multi nationals get away with minimal tax.

One only has to look at Vodaphone who were treated leniently some years ago in another tax fiasco and have recently escaped paying CGT on the sale of Verizon shares, whereas a smaller trading company would have paid full whack.

Ray Best can help you protect your financial future. To find out more, simply click here!

Financial Independence

by Ray Best.

Retiring and achieving a decent lifestyle is achievable for most people if you know how …

Politicians have created a boom or bust economic environment in the UK over the years, often using the housing market as a tool to get the economy going; encouraging UK households to buy houses they cannot afford. A major proportion of household income is spent on the cost of funding a mortgage.

Politicians are also responsible for the “light touch regulation” a polite means of saying “anything goes” that has encouraged the banks to put profit and their bonuses  first and to disregard their customers.

This combination has led to a complete financial meltdown and the degrading of fiat (paper) currency worldwide.

Politicians never seem to learn and the next boom or bust cycle has already been put in motion by George Osborne to ensure a Conservative victory in the next election.

Already the forward debt of the UK is forecast to exceed that of Greece and Spain, essentially the UK is bust. But it’s not only the very wealthy people who are likely to enjoy true financial independence , it could be you if you know how

What is Financial Independence?

This is when you can afford to choose to NOT work not when you have to work.

When you can spend time with the people you care about.

And do what YOU want to do.

Benefits of Financial Independence

Freedom and peace of mind.

You may benefit also from a state of happiness and satisfaction that you have worked smartly and achieved the lifestyle that you desire.

How do you achieve financial independence or work towards this?

Firstly you need to be aware of your current financial position, That is look in detail at all of your financial assets and liabilities and income.

Project all of these forward to establish your future financial position…

Then ask yourself and your partner – are we happy with this or do we want to work with someone to achieve a more prosperous financial future?

Never has there been more need to seek out pro-active financial advice, given the difficult and deteriorating financial position of the world economy which is likely to result in a massive slump in asset values and rampant inflation.

Your financial future is likely to depend on the smart financial choices you make now and over the years ahead, and the strategies that you choose on an ongoing basis….

It is possible to meet a financial planner for a one off no obligation meeting to get a better understanding of your financial position

If you are serious about your financial future Ray Best a lifetime Member of the Million Dollar Round Table is currently offering a limited number of appointments, but this offer may not be around for long …………

Employee Shareholders

What are they?

They are employees engaged on special contracts who give up many of their employment rights, including those in relation to unfair dismissal and statutory redundancy payments. In exchange for being granted shares in the business valued at a minimum of £2,000 at the time of issue. Employees will enjoy a Capital Gains Tax exemption on disposal of the shares (with other limited tax breaks).

The Government envisages that this new right will see more companies use shares to recruit, retain and incentivise staff. This may be particularly attractive to smaller businesses.

Existing employees cannot be forced to take up employee shareholder status.  Indeed, it will be automatically unfair to dismiss an employee for refusing such an offer. However, employers can still choose to offer only this type of contract to new recruits.

Crucially, for an employee shareholder contract to be valid, a number of precautionary steps must be taken:-

The employee must take independent legal advice on the rights they are giving up. This must be funded by the employer.

There will also be a seven day ‘cooling off’ period during which the acceptance will not be binding. Employers must also provide a written statement with full details of the rights being signed away and information about the shares on offer.

Are employee shareholder contracts a good thing?

Offering shares in a business may make employees feel more committed to the company. This may serve to bolster trust and promote growth of the business.

Start-ups and growing businesses with a proactive approach to staff engagement and potential for capital growth, maybe interested in the new contracts.

The new contracts may also be attractive to companies as a way of rewarding employees in a tax efficient manner. Indeed, some high-earners in receipt of high value shares, may consider tax savings to be far more important than the employment rights they will sign away.

What else?

There is a risk that withdrawing significant employment rights in return for shares could reflect poorly on a company’s reputation. The step away from flexible working and the increased notice periods for mothers returning from maternity leave, might be perceived as pushing against the progressive tide at a time when most businesses are seeking to appear more family-friendly.

Will you lose good potential recruits if their first involvement with the company is to be sent off to a solicitor and required to sign away their rights? This is a realistic possibility.

Employers should ensure that the written statement provided to employees not only sells the benefits of what is offered, but is also clear so employees enter the scheme with their eyes fully open.

There is also a danger of creating a two-tier workforce of those employees with and without shares. The increased administrative burden involved in managing the different financial, tax and legal arrangements may prove a headache.

Employers will also need to factor in the costs of implementation. The reasonable costs incurred by the employee in seeking legal advice must be met by the employer, even if an offer is eventually declined (which is not normally the case when an employee is sent off to receive advice on a settlement agreement).

We feel on balance that this new type of employee is worthwhile but may be best restricted to entrepreneurial companies with entrepreneurial employees. Providing the company is successful this could prove highly profitable for the employee shareholders.

Ray Best can help you protect your financial future. To find out more, simply click here!

HMRC still chasing approx. £2 Billion from Employee Benefit Trusts

Many former clients of Premier Strategies and other members Tax House inspired Employee Benefit Trust arranged are very concerned about the need to make a settlement with HMRC. Should they still be concerned?

HMRC is still having trouble with reclaiming revenue which it believes to be owed, since the tax authority has still to collect up to £2 billion in outstanding tax due from employee benefits trusts.

According to informed sources, less than a quarter of the amount supposedly owed by these sources has been reclaimed. This is despite the fact that it has been two years since HMRC established a settlement scheme for businesses using these trusts to come forward and pay any outstanding tax.

HMRC believes that around 6,500 firms have used employee benefits trusts as a mechanism for paying their top earners and that as much as £3 billion in tax has been essentially ring-fenced by companies adopting these “aggressive” tax avoidance schemes.

Despite the findings in HMRC and Rangers Football Club over the use of such a scheme. A first-tier tax tribunal ruled last year that Rangers has used the scheme legitimately, but HMRC was given the right to appeal in February. Small wonder as we understand that a side letter was issued to football players informing them that although the loans were re-payable on demand “they would never have to pay the loans back” – LOL!

Small wonder that HMRC has already filed its appeal with the upper-tier tribunal.

It seems that companies are resisting settling with HMRC, although HMRC is believed to have recovered around £650 million – a further 400 firms are currently in talks with tax officials, which is expected to raise another £300 million in outstanding revenue.

Nevertheless, HMRC issued a statement saying that it is “pleased” with the progress made so far and is still on target to receive “substantial sums”. The authority added that it has contacted every company known to have used an employee benefit trust in the past and is continuing to chase them for the revenue that HMRC believes is owed.

“We would have liked more people to have come forward by now but the numbers are accelerating as the benefits of settling become more widely known,” the statement explained.

Clearly should HMRC win an appeal in the Rangers case it will put further pressure on firms to settle.

Settlements for Employee Benefit Trusts (including those from Premier Tax Strategies)

PREMIER EBT’s

The background to this is that Premier issued a letter to clients on 28th January 2013 inviting each client to authorise Premier to enter into negotiations with HMRC regarding potential settlements on outstanding employee benefit trust arrangements.

As a result of those negotiations, HMRC is now issuing individual EBT settlement illustrations to each client via Premier Strategies. Unfortunately, these illustrations are being prepared individually which means that it is likely that, based on the rate at which these are being issued, it will probably take HMRC another couple of months to issue illustrations for all clients!

Clients need to understand to the principles behind the revised settlements. There are a number of beneficial changes from previous settlement offers resulting in a reduction in the quantum of the settlement. However, let me be clear, based on what I’ve seen so far, I certainly will not be recommending settlement to any of my clients and will certainly not be taking advantage of the settlement offer for my own company (as we have already extracted ourselves from our EBT!)

Yes, HMRC is tiptoeing in the right direction but it’s a long way short of any commercial settlement. Personally, I cannot see any incentive for clients to settle liabilities now.

Particularly as we offer a bespoke planning service which can extract you from your EBT liabilities on preferential terms (depending on your personal circumstances). So why would anyone want to enter into negotiations when there may be an alternative method that is beneficial  for you and your family.

Ray Best can help you protect your financial future. To find out more, simply click here!

Enterprise Investment Schemes – why it is worth considering your requirements now.

You may be thinking that there’s no need to think about EIS until January next year. But before you pack up for a well-deserved summer break, make a note to check your EIS investment needs in September.

Many of you probably have income tax or CGT to pay in January 2014. An EIS investment is one way to avoid or defer paying. The key question is when to make that EIS investment.

The client will need an EIS3 form to send to HMRC in January. It typically takes a month or two to get the EIS3 form after the investment has been made. That means investing in October/November. So September is a crucial time for you to select the right EIS.

We used to be fairly ambivalent about EIS investments, until we found a highly professional investment team that seeks out very good investment deals.

We understand that they are working on a slate of new deals the first of which will become available in September.

Ray Best can help you protect your financial future. To find out more, simply click here!

I have recently been advised on Estate Planning Inheritance and have been told that I should set up a loan trust arrangement, is this my best option?

That’s a difficult question to answer without knowing your full circumstances, however I understand this is primarily promoted by life insurance companies who would like you to invest your cash into their own investment funds.

Let’s look at an example of a client who had been advised to do this by a life company, and later advised that he could reduce IHT and income tax charges by waiving the right to some, or all, of the outstanding loan repayment…..

When Dennis Barnes was aged 56, he was a 40% taxpayer, and understood that in the event of his death, the size of his estate would mean that a substantial amount of inheritance tax (IHT) would be payable, which would reduce the amount his children could inherit.

Although he could afford to gift some capital to his children, this caused him some concern:-

  1. If his children got divorced their partners might make a claim against their assets (so effectively he could be gifting up to 50% of his money to a stranger).
  2. What if his circumstances changed at a later date?

He was advised to settle £100,000 into a loan trust arrangement using a discretionary trust, so he would have access to the original capital via loan repayments, also any increase in value would fall out of the estate and into the trust arrangement.

The trustees then invested these monies into an investment bond written in 100 identical segments, and Dennis’s two children were named as additional lives assured to allow for greater flexibility.

Five years later, Dennis has taken no loan repayments and is still a a high rate taxpayer. At the start of year six the investment bond is worth £130,696, having grown by 5.5% each year net of charges. Each segment is therefore worth £1,306.96.

Therefore £30,696 is outside of Dennis’s estate for IHT purposes, saving a potential £12,278 in IHT.

However, the outstanding loan of £100,000 still forms part of Dennis’s taxable estate on death. He has now decided he will give up his rights to around half the loan (£50,000).

What options are available for him to give up the rights to the loan?

The life company advised

The two possibilities open to Dennis: are that he could demand part repayment of the loan and gift the cash generated; or he could waive her rights to some or all of the outstanding loan in favour of the discretionary trust.

Loan repayment option

If Dennis took this option, it would be up to the trustees to extract funds from the bond to repay him. There are two ways they could go about this. They could either surrender some segments or take a partial withdrawal from every segment. Surrendering 39 segments, roughly equivalent in value to half of the loan, would result in a lower chargeable gain.

  • Segment surrender:
    39 segments x £1,306.96 = £50,971.44, minus the original value of 39 segments, £39,000, (39 x £1,000) leaves a chargeable gain of £11,971.44
  • Partial withdrawal:
    £50,971.44 is surrendered, minus £30,000 (5% per annum of tax on the £100,000 investment deferred over six years) leaves a chargeable gain of £20,971.44.

The chargeable gain would be taxed on Dennis as he is the settlor. As a higher rate taxpayer, he would have to pay, on segment surrender, tax of £2,394.28 (20%) for an onshore bond and £4,788.56 (40%) for an offshore bond.

The proceeds, net of the income tax liability, could be gifted to the two children as a potentially exempt transfer.

However, this is clearly not a sensible approach as there the disadvantages of incurring an income tax liability and a loss of control if an outright gift is made to the children.

Waiving rights to the loan

If Dennis instead waived his rights to some or the entire outstanding loan in favour of the discretionary trust, this would be a ‘transfer of value’ for IHT purposes. Where this waiver exceeds any available annual exemptions for IHT purposes, the excess will be a chargeable lifetime transfer.

Where the settlor was excluded from benefiting under the trust, this would not give rise to a gift with reservation. To be effective, any waiver must be made by deed, otherwise HM Revenue & Customs will not accept it as being valid.

Each year, Dennis could use his annual IHT gifting exemption by waiving a further £3,000 in favour of the trust.

The waiver option avoids the encashment of the bond and therefore a potential chargeable event arising. Also the beneficiaries under the trust benefit from the loan waiver.

Funds can also remain invested and the trustees have control over the monies and when the trust fund is distributed to the beneficiaries.

This complex proposal is designed to put a client in “control of his assets” but also save inheritance tax. However what you are really doing is passing control of the future value of your investments to a life insurance company internal fund!

Inheritance Tax Planning or Estate Planning should be considered using trusts that are independent of the life insurance companies, that way you can be sure you are really in control of your financial affairs.

Ray Best can help you protect your financial future. To find out more, simply click here!

Director Loans

Business owners are often strapped for cash not because their businesses are unprofitable but often because having spent years building up the business they have aspirational lifestyles and want to live in a big house and to create personal wealth outside of the business.

What we have found useful in the past is to include within our planning the use of loans from their business. Used creatively this has really useful means of easing the cash flow constraints for Directors without having to pay tax.

What used to be possible was for a director to take a substantial loan the day after his trading year had closed and then have the use of that money for 21 months.

If the loan was still outstanding at the end of that period then it must pay tax of 25% of the amount of the loan which is still outstanding nine months after the end of the chargeable accounting period in which the loan is made (s455 CTA 2010 – the loans to participators rules).

The purpose of this rule is to deter companies from making untaxed loans to their directors rather than paying remuneration or dividends which are taxable as income.

Even when a 25% tax has been levied, it was still possible to get that money back as when the loan is repaid by the director, tax previously paid will be refunded back to the company. There is quite a delay in getting the tax back as this will normally be nine months and one day from the end of the accounting period in which the repayment of the loan is made.

However two significant changes are being introduced to the tax system which could impact on your profit extraction policy going forward: the introduction of new payroll reporting requirements under the Real Time Information (RTI) system, and restrictions on the ‘recycling’ of director’s loan accounts announced by the Chancellor in his March 2013 Budget.

However, in his Budget speech on 20 March 2013, the Chancellor made an important announcement in relation to close company loans to employees and participators. The Government’s intention is to ensure that “the repayment rules are reinforced so relief is only given for genuine repayments.”

What the Government doesn’t like here is that loans may be repaid within nine months of the accounting period, so preventing the tax charge becoming due and payable, but then the money is redrawn very shortly after the repayment through another separate loan. In other words, the repayment was never intended to be lasting.

With effect from 20 March 2013, where a loan is made (and repaid within the nine month limit) and there is a clear intent for a new loan to be granted by the company to the shareholder, this will be considered as an extension of the original loan and therefore caught by the loan to participators rules.

A new “30 day rule” will be introduced to deny the relief if within a 30 day period repayments of more than £5,000 are made to the close company in respect of a loan which gave rise to a charge to tax and amounts are then redrawn through a loan.

Even if the 30 day rule does not apply to deny relief, relief will be denied if there are loans outstanding amounting to at least £15,000 and at the time of a repayment there are arrangements, or an intention, to redraw the amount through a loan (and an amount is subsequently redrawn).

Therefore if you are a Director with a substantial negative Directors Loan balance, you need to review your forward planning.

Ray Best can help you protect your financial future. To find out more, simply click here!

 

The Swiss Tax “roll” but HMRC does not “Rock”

Tax Avoidance is OK for the really wealthy but not for hard pressed UK business owners.

The incompetence and uneven approach of HMRC has been exposed once more in the Treasury’s deal with Swiss authorities. The Treasury’s attempt to tax wealthy individuals who hide their assets in Switzerland was declared an embarrassing failure by experts on Friday after the Swiss authorities said it would generate only a small fraction of the expected £3.2bn haul

According to the Swiss Bankers Association (SBA), the deal does not apply to most UK nationals who keep their cash in Swiss banks because they are not domiciled in the UK.

The SBA said the UK may get little more than a CHF500m (£347m) minimum levy agreed with the UK after individual banks found only small sums from UK citizens were caught by the deal.

According to the Treasury’s red book, which forecasts tax revenues over the next five years, a one-off levy on Swiss assets owned by UK residents, ranging from 21% to 41%, was due to raise £3.2bn in this tax year.

A withholding tax on future gains and income of up to 43% was expected to rake in £610m in years 2014-15 and £920m in the following year.

The Swiss declaration is not only embarrassing for the Treasury, it also knocks a sizeable hole in public finances as the Office for National Statistics included the £3.2bn in May’s public accounts.

There is a view that the tax treaties between Switzerland and the UK should be torn up.

The Swiss withholding tax model is now dead. Dave Hartnett, David Gauke and the Treasury having sanctioned this deal surely must now hang their heads in shame,

“It’s the rich wot gets the pleasure, it’s the poor wot gets the blame – ain’t it all a bloody shame!”

Ray Best can help you protect your financial future. To find out more, simply click here!

Back Dating Tax relief to previous Financial year for an Enterprise Investment Scheme

I have invested into an EIS and want to claim tax relief in the previous financial year but my accountant says I cannot do this and will have to make a claim when I next make a tax return, is this correct?

I think the accountant may be overlooking a key point. The following is part of the text that he quoted to you:

If you have an EIS3 for a year for which you have not yet received a tax return, you can request a change to your PAYE tax code, or an adjustment to any Self-Assessment payment on account due.

This is not strictly true, what you should do is to write to HMRC now, enclosing a copy (not the original) of the EIS3 form, and requesting a reduction in the payment on account for 31st July 2013 (if you  on self-assessment) or an adjustment of your PAYE code.

Making an EIS investment at this time of year is a great way of reducing tax.

Ray Best can help you protect your financial future. To find out more, simply click here!

I sold an investment property last year and I am worried about the estimated £140,000 of Capital Gains Tax that I have to pay – is there anything I can do?

Capital Gains Tax is a tax on the gain or profit you make when you sell, give away or otherwise dispose of something. It applies to assets that you own, such as shares or property. There’s a tax-free allowance and some additional reliefs that may reduce your Capital Gains Tax bill.

You usually dispose of an asset when you cease to own it – for example if you:

  • sell it
  • give it away
  • transfer it to someone else
  • exchange it for something else

It’s the gain you make – not the amount of money you receive for the asset – that’s taxed.

I understand after speaking to you briefly that you are married. One of the steps that you should have considered was to put the investment property that was in your sole name into the ownership of your wife as well. If you had put her name on the property title at least a month before you sold it then you would have been able to claim two annual allowances…

You also need to consider what level of tax you will have to pay as the rates for capital gains tax vary, for 2013 they were:-

  • 18 per cent and 28 per cent for individuals (the tax rate you use depends on the total amount of your taxable income and gains)
  • 28 per cent for trustees or personal representatives
  • 10 per cent for gains qualifying for Entrepreneurs’ Relief

With the amount of capital gain that you have made then I believe its worth mentioning the benefits of investing in an Enterprise Investment Scheme, as investing in EIS shares creates valuable capital gains tax savings.

Firstly, you can defer the tax due on any capital gain you have made on the disposal of any asset, by claiming to roll that gain into the value of the EIS shares you have acquired. The period in which you must acquire the EIS share is very generous – it starts one year before you make the gain and ends three years after that date. You can invest all or only part of the gain you have made. This allows you to leave some of the gain covered by your annual capital gains exemption (£10,900 for 2013/14), and thus be exempt from tax.

When you dispose of the EIS shares, the gain you have rolled into those shares must be taxed. However you may dispose of the EIS shares in tranches over several tax years. This spreads-out the taxation of gain, so only small parts are taxed in each year. This can reduce the rate of tax you pay on the gain down from 28% to 18%, or even to 0% if the gain is small enough to be covered by your annual exemption for the year.

Ray Best can help you protect your financial future. To find out more, simply click here!

61% of business owners believe that a key employee dying or suffering a critical illness would have a severe financial impact on their business . . .

You have worked hard all of your life to build your business to the current of level of turnover and profitability. Running any successful business requires that you allocate your time over a variety of tasks such as managing your employees, safeguarding the cash flow of the business and making sure you are up to date with the payment of any outstanding – including taxes.

I wonder though whether you have devoted any time to consider the security of the business in the event of a key employee dying or suffering a critical illness . . .

Although you may be the majority shareholder, is that decision really yours to take – without consulting your wife and children?

Because if like many business “owners” your business is your main asset, then isn’t your family entitled to a say, as surely the business belongs just as much to them.

You may think that you have years left to make these sorts of decisions, but do you?

What if either you or your co-Director died last night?

Where is the money going to come from to pay out either family?

Ray Best can help you protect your financial future. To find out more, simply click here!

I’ve heard a lot about buy-to-let property investment, but need to know more before I take the first step, what do I need to know?

If you’re trying to decide whether to invest in buy-to-let property, you might want to consider the following:

What market will you be entering?

1. Renting to people on benefits
2. Renting to students
3. Renting to working tenants
4. Renting to professionals & higher end market

Make sure that your property addresses the market it is supposed to serve.

Can you manage the property on your own?

If you know the responsibilities and best practices in managing properties, looking after your own property will save you the cost of an agent but will require more of your time.

Have you got the necessary permissions?

If you are thinking of letting property that has a normal residential mortgage, you will require permission from your mortgage lender. So check with them first.

Provide an Assured Shorthold Tenancy (AST) agreement that you and the tenant sign. This will outline the length of the tenancy, amount of rent, when it is to be paid and deposit details.

If you are thinking of letting property that has a normal residential mortgage, you will require permission from your mortgage lender. So check with them first.

Carry out full background checks on potential tenants to check they are in a position to meet their rental commitment.

Protect the tenant’s deposit with a government-authorised scheme, such as mydeposits.co.uk.

Create an inventory describing the condition of the property in detail, along with the furnishings.

Have gas appliances checked annually by a Gas Safe registered engineer and provide the tenant with a Gas Safety Certificate.

Take out comprehensive landlord insurance to protect your property.

Ensure urgent repairs are fixed promptly. Use reputable tradesmen that you know and can trust to tend to the property at short notice.

The key to survival in the property business is to maintain a healthy cash flow so make sure you understand what property investors call “the numbers”. You also need the right strategy to build your property portfolio gradually over the years and achieve financial freedom.

I have known a number of people whose lives have been significantly impaired by investing in property the wrong way. However properly organised a buy to let portfolio can significantly improve your quality of life and safeguard your future. Get in touch if you need advice on how it can be done.

Ray Best can help you protect your financial future. To find out more, simply click here!

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I’m a High Rate Tax and face a massive tax bill for my income of £150,000 is there anything I can do to reduce my tax bill?

In order to respond to this query, I assume that you are likely to be a high rate tax payer in the future as you are employed on a high salary or self-employed with a high level of earnings. Also I am assuming that for some reason or the other do not want to consider contributing to a pension scheme either because you are already paying the maximum or that you want more control over your money.

If those assumptions are correct then I believe it’s worth mentioning the benefits of investing in an Enterprise Investment Scheme.

Risky but rewarding

To qualify for EIS the shares must be newly issued by small unquoted companies, so by their nature the investment will be relatively high risk. In return for taking that risk you can receive:

  • income tax relief equivalent to 30% of the amount you invest (within limits); and
  • deferral of tax on any amount of capital gains reinvested in the EIS shares; and
  • if the company fails – a capital loss which can be converted into an income tax relief, less the income tax relief already given on investment.

You must be resident in the UK for tax purposes to take advantage of these tax reliefs, and generally not be connected with the company.

We particularly favour investing in a portfolio of EIS companies to spread the risk of your investment.

Income tax relief

The income tax relief is given on up to £1 million that you subscribe for EIS shares in each tax year. You can elect to claim income tax relief either in your current tax year or the previous tax year, or both! This is helpful to many people, as often they do not know the full extent of their tax liabilities until many months after the end of the tax year.

For example if we look at the financial year past income tax bands for high rate tax started at £34,371. So you could invest as much as £115,629 in an EIS and relate this amount back to the previous tax year 2012-2013.

For this year income tax bands have changed so high rate tax start at £32,011, so you could arrange to set off an amount of £117,989 against this year’s tax bill.

Secondly, where you have obtained, and kept, income tax relief on the EIS shares, the gain made when disposing of those shares is exempt from capital gains tax. You must keep the EIS shares for at least three years to achieve this tax relief.

Finally, if you make a loss on the EIS shares that loss can be set against any capital gains you make in the same tax year or later period. Alternatively you can elect for the capital loss to be converted into an income tax loss to reduce the amount of income tax you pay.

As you can see for high rate tax payers Enterprise Investment Schemes can be particularly attractive, if you have sufficient funds to invest but before you rush off and invest in an EIS do seek out advice from a quality adviser, you need to be advised by someone who has a good knowledge of the EIS market but is also knowledgeable about tax.

Ray Best can help you protect your financial future. To find out more, simply click here!

Want to improve returns from your savings? Have a look at the Crowd Lending or Peer to Peer Lending sites

Many savers are facing an uphill battle to earn interest rates that beat inflation. Although there has been a slowdown in the rising cost of living, savers will still see the value of their money eroded, unless they opt for a fixed-rate, fixed-term account or an ISA.

To outstrip inflation, a basic-rate taxpayer needs to earn a rate of 3% in a standard savings account, while a higher-rate taxpayer needs to find a rate of 3.99%. However, we understand that out of 861 non-Isa accounts on the market, only one paid as much as 3%.

However many savers have had to put up with interest rates as low as 0.5% for more than four years, which is a paltry rate of return.

So instead of putting your money into a bank or building society, why not consider a radical alternative  way of investing your money, known as peer-to-peer lending.

Also called social lending, this allows savers to lend directly to individuals or businesses looking to borrow money. It often provides a better return than they would get with their bank, but there are greater risks involved and less protection for their investment.

At present, there are three big players in the market: Zopa, Funding Circle and RateSetter. These three companies have overseen about £458m of loans and many predict this figure will continue to rise.

If you are motivated  to improve the returns from your savings in a peer-to-peer lending scheme because of the small amount little interest you would receive from High Street bank and building society savings accounts, then we suggest that you test the water by investing small amounts of money across a number of different peer to peer sites. You need to be aware that your funds are not covered by the Financial Services Compensation Scheme and also there is potential for loss.

However given that the rate of return on easy access accounts has fallen by an average of 68% over the past two years, and the average rate on an easy access savings account with no bonus was only 0.76%.

Savers with peer to peer lending sites report that they have experienced much higher returns of as much as 4.9% interest. So even if you accept some minor losses on investments you may still obtain a better overall return than in a one-year bond with a bank.

Risks involved

Peer-to-peer lending is still dwarfed by traditional bank lending to small and medium-sized businesses, which in gross terms stands at about £3bn a month.

Unlike the more traditional forms of lending, there are some additional risks to be aware of with peer-to-peer lending. These schemes do not have the same protection as savers with UK-registered banks, building societies and credit unions. Under the FSCS, the first £85,000 of their funds per person per institution is protected if it goes bust.

 Check the peer to peer sites out but before proceeding ask these three questions :-

– What is the current default rate for borrowers?

– Is the site a member of the P2P Finance Association? If not, why not?

– How do you check out potential borrowers to see if they are creditworthy?

The peer to peer web sites link borrowers and lenders directly, they will shortly hit £500 million of loans in the UK.

Ray Best can help you protect your financial future. To find out more, simply click here!

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Have You Considered a LoanBack to Finance Your Business?

Small businesses may have thought they had been thrown a financial lifeline, with the launch of the £80billion Funding for Lending scheme by the Bank of England and the Treasury back in July 2012. Aimed at solving the country’s small business and mortgage lending crisis, it enabled banks to borrow an unlimited amount of money for as little as 0.25% as long as they maintained, or increased, their lending.

Despite this availability of loans, independent research by the Federation of Small Businesses (FSB) showed that, in fact, loan refusals actually rose to around 42%, scuppering any chance for business expansion. This was despite half of the 2,600 respondents wanting to grow their businesses in the coming year.

While the Funding for Lending scheme may have failed, there is an alternative way for small businesses to raise finance while contributing to a pension scheme – the LoanBack.

LoanBanks enable you to borrow 50% of your pension pot

There are many thousands of small businesses in the UK in need of a financial boost, making the market for LoanBacks huge.  In the current economic climate, the ability to borrow money from one’s pension scheme is an attractive option. The problem is that many businesses have not structured their pensions in a way that allows this.

LoanBacks can be an ideal solution for small businesses, whether for expansion through purchase of new plant and machinery, or an injection of funds into a capital project. If, for example, four directors of a small business have pension funds worth £100,000 each they can pool those pension funds and borrow up to 50%, creating £200,000 to invest in their business. Furthermore, this puts them in control of the line of credit, removing their reliance on the banks. After all, why borrow and pay interest to a bank when it can be paid into the directors’ own pension fund?

There are rules and regulations to follow and there can be significant tax penalties if these rules are not adhered to. As always, it is advisable to seek out a competent and experienced pension specialist.

The banking credit crunch may be with us for a while and if your business could benefit from this type of funding you need to ensure you have the right type of pension arrangement in place.

Ray Best can help you protect your financial future. To find out more, simply click here!